European Central Bank (ECB) chief Jean-Claude Trichet said that the authorities need to be permanently alert to avoid risks arising from the second round effects of higher energy and commodity prices.
In an interview with Finnish publications Helsingin Sanomat and Kauppalehti, which was posted on ECB's website on Tuesday, he said that "we have risks of second-round effects here and there. We have to be very alert that they do not materialize."
Trichet, at the same time, stressed on the need to continue solidly anchoring inflation expectations in a period marked by uncertainties and turbulence.
However, the policymaker assured that at the moment, he did not see any significant materializing of second-round effects and un-anchoring of inflation expectations.
Regarding the ECB governing council's decision to hike the key interest rate by a quarter point in the April meeting, Trichet said the move was intended to deliver price stability in the medium term. He said it was extremely important to prevent second-round effects after the "hump" in the headline inflation rate.
He noted that some price-setters and social partners might be tempted to view this "hump" not only as a transitory phenomenon, due to a shock in the price of energy and commodities, but as something more permanent. "Such a perception is not acceptable for the governing council, and that is the reason why we increased rates."
Trichet said that he has full trust in the U.S. for preserving its creditworthiness and the authority of its signature. All advanced economies, without exception, in Europe and the rest of the world, should be very keen on the sustainability of their long-term fiscal policies, he added.
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